Collins & Aikman's proposed auction rules draw objections

CarolMcCleary

Although it recently agreed to settle a protracted dispute with Collins & Aikman Corp.
CKCRQ
General Electric Capital Corp. is opposing the automotive-parts supplier's proposed bidding rules for the sale of its North American plastics unit.

The equipment lessor filed the objection Tuesday with the U.S. Bankruptcy Court in Detroit as a protective measure, saying its concerns may be addressed and the objection rendered moot "when and if" the proposed settlement with Collins & Aikman is finalized and approved by the court.

Collins & Aikman announced on April 2 that it had reached a deal to sell its North American plastics unit to Cadence Innovation LLC for $68 million, subject to higher offers at auction.

As part of the arrangement, Cadence Innovation will resolve a $76 million obligation with a GE Capital affiliate at a plant in Hermosillo, Mexico, and end an ongoing dispute over equipment financing arrangements with GE Capital and Textron Financial Corp. in amounts up to $20 million.

A hearing on Collins & Aikman's proposed bidding rules was schedled for Thursday but has been postponed to Monday.

In its objection, GE Capital said it can't determine whether the proposed sale includes any of its assets or collateral. The lessor reserved its rights to oppose the sale if assets or collateral are among those on the block.

GE Capital Corp. also objected to a provision in the proposed bidding rules that would restrict the right of creditors, itself included, to credit bid at the auction.

Bankruptcy law allows secured debt holders to make credit bids - or offer the face amount of what they're owed - instead of, or in addition to, offering cash at a bankruptcy auction.

Collins & Aikman's bidding rules would give the company discretion to accept a credit bid or not. GE Capital said that the proposed restriction on the right to credit-bid - that is, to offer the face amount of a debt in lieu of cash at an auction - is vague, giving the company wide latitude to determine at the bidding stage whether credit bids would render the asset sale as a whole "reasonably impracticable."

Rather than having such credit bid restrictions, GE Capital said that the bidding rules should provide that any credit bids will be evaluated at the sale hearing.

GE Capital stressed that its concerns with the bidding rules may be resolved by the proposed settlement, once finalized and approved.

Counsel for the company and GE Capital didn't return calls seeking comment on the status of the settlement.

A group of insurers voiced opposition not to the bidding rules, but to the proposed sale.

Continental Insurance Co. and National Fire Insurance Co. of Hartford said in a filing on Monday that the sale agreement would impermissibly assign certain interests in the insurance contracts they issued to Collins & Aikman.

The assignment would increase their risks under the contracts by forcing them to defend not only Collins & Aikman, but also the asset purchaser, the insurers said.

Three other insurers - Century Indemnity Co., Mount McKinley Insurance Co. and Everest Reinsurance Co. - joined in the objection.

Meanwhile, Ford and its Mexican unit, Ford Motor Company SA de CV, said in their own filing on Monday that they don't oppose the bidding rules, but do reserve their right to raise any objections to the sale itself.

"Although Ford of Mexico is continuing to talk with Cadence, and may agree to the sale and assignment of some or all of its purchase orders and production contracts to Cadence or another prospective purchaser, Ford of Mexico has the right to withhold its consent to any such sale and assignment," the Ford companies said in a court filing Monday.

Michigan-based Collins & Aikman filed for Chapter 11 protection from creditors in May 2005 amid production cutbacks by the biggest U.S. vehicle makers and allegations of fraud by investors who claimed they had been misled about the company's financial condition. In November 2006, the company decided to sell its assets rather than try to reorganize.

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